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American Morning

The Faltering Economy is Hurting Nation's Surplus

Aired August 28, 2001 - 10:01   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LEON HARRIS, CNN ANCHOR: The pen may indeed be mightier than the sword. But in Washington, sharpened pencils are drawing the battle lines this morning.

A new government accounting report, released just last hour, shows the faltering economy is draining the nation's surplus. But whether that bottom line is now wallowing in red or resilient in black depends on partisan portrayal. And an even larger picture hangs in the balance, as so often happens in Washington.

For a closer look at the digits and pointing fingers this morning, let's turn now to our Brooks Jackson. He's standing by in Washington this morning. Brooks, good to see you.

First of all, any surprises here at all?

BROOKS JACKSON, CNN CORRESPONDENT: Not really, Leon. As we look over what the Congressional budget office is put out, their latest review of the budget -- their latest budget forecast. It's pretty much as we were told yesterday, the surplus -- in normal times you would say this is terrific news, despite a sagging economy and a big tax cut, there is a surplus still projected for this fiscal year of $153 billion. That's 1 1/2 percent of entire output of the economy for this entire years. In those terms, it's the second biggest since 1951.

But that surplus is $122 billion less than was projected in January, and as a result CBO, the Congressional Budget Office, now predicts that in this fiscal year we'll be dipping into those social security funds, $9 billion of social security taxes we'll be dipping into. And that's contrary to what the administration had predicted. They thought we'd be a billion over.

HARRIS: So where then did all the money go? Already we've heard the White House coming out and saying it's because the economy has slowed down, and we've heard the critics of the White House saying, well it's because of that tax cut.

JACKSON: Well, here's the way the Congressional Budget Office cuts it: It's $122 billion, as I said before, less money in the surplus than was projected back in January. $74 billion of that reduction they attribute to the tax cut; of course, for mailing out these advanced payment checks, payroll withholding was reduced in July, so everybody's getting less money taken out of their checks. $74 billion of the tax cut.

25 billion attributable to a slower economy. Back in January the CBO was projecting economic this year at 2.4 percent, now they're only projecting it at 1.7 percent for this calendar year.

Seven billion in added spending, most of that's for farm aid -- 5 1/2 billion for farm aid that Congress enacted. And $16 billion in technical corrections. Some of this is accounting gimmickry, money was moved from this fiscal year into next fiscal year, doesn't really make a big impact in the real world but it makes an impact on the bottom line when the government accountants get ahold of it.

HARRIS: All right. So what's at the root of the differences here, because we're seeing one picture being painted by the OMB, another one by the CBO. Is it just politics or what?

JACKSON: Well, they're not that far off, of course. And the difference between $1 billion surplus in social security, and dipping in $8 billion, $9 billion, is infinitesimal in the overall scheme of things. Part of this is differences in -- very small differences in assumptions about accounting.

HARRIS: All right, there you go. That's what accounting class was like for me in college, too.

Thanks, Brooks Jackson in Washington for trying keeping this stuff straight for us. We'll talk to him later.

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